6/23/2016 HindustanMotors'StruggleforSurvival|TheTurnaroundEffortsPhaseII|FreeManagementArticles|FreeManagementCaseStudies

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HindustanMotors'StruggleforSurvival
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Themes:TurnaroundStrategy
Period:19982002
Organization:HindustanMotors CaseCode:BSTR021
PubDate:2002 CaseLength:10Pages
Countries:India Price:Rs.300
Industry:Automobile&
Automotive

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TheTurnaroundEffortsPhaseIContd...
The division bench directed that the matter be referred to the Industrial Tribunal. In July 1999, the Industrial Tribunal
dismissedthecompany'sproposal.HMagainfiledawritpetitionagainsttheTribunal'sorderinthedivisionbenchofCalcutta
High Court and the division bench upheld the Tribunal's order. In response to the division bench's order, HM moved the
SupremeCourtinJuly19997.Duringallthistime,productivityattheplantsufferedconsiderably,whichaddedtocompany's
woes.

TheTurnaroundEffortsPhaseII
Whenitsattemptstoreorganizeitsoperationsdidnotpayoff,HMdecided
to look beyond its existing product portfolio to come out of its problems.
As per McKinsey's recommendations, the company explored the global
auto components business in 2000 and established a unit at Indore to
assembleenginesandgearboxes.

Analysts said that this was a wise move because HM with its expertise,
couldeasilybecomeacomponentsupplierforbothdomesticandglobalcar
majors. HM's executive director Sarker Narayanan said, "We are open to
such opportunities. It brings in extra cash and it's an inexpensive way to
upgradeourskillsbyworkingwithdifferentcustomers."

In order to use its design and engineering skills to enter new businesses,
HM entered into an agreement with Mahindra & Mahindra (M&M) for
developingpetrolengineforM&Mvehicles.

ThecompanyalsotiedupwithGMtomarkettheentirerangeoftransmissionequipmentmanufacturedbyAllisonAutomatics
(acompanyownedbyGM).HMthenoverhauleditsdistributionsysteminordertobecomemoremarketfriendlyanddealer
friendly (HM was accused of offering very few dealer incentives and poor aftersales services). In 1999, the company
unveiledanewdistributionstrategy,whereindealersweredividedintothreetiersred,blue,andgreendependingontheir
locationandperformancerecords.

WhiletheredtiercateredtothemetrosforsellingandservicingLancers,thebluetiercateredtothesemiurbanareasfor
Contessas and Ambassadors and the greentier catered to the rural markets for Trekkers. HM also decided to explore the
overseas markets for its products and began by exporting around 150 RTVs to Bangladesh in 2001. The company also
managedtosecureanexportorderfor300petrolenginesfromaUKbasedcompany,inadditiontothe1,800enginesalready
supplied.

In February 2001, HM sold its earthmoving equipment manufacturing division to a whollyowned Indian subsidiary of
CaterpillarInc.forRs3.3billion.Afterthedeal,HMwasabletobringdownitshighinterestdebtsfromRs255.5millionin
thefirstquarterofthe199900toRs156.9millioninthecorrespondingquarterofthe200001fiscal.Thecompanyusedthis
moneytorepaydebtsworthRs2.25billionfromitslongtermborrowingsofRs6.2billion.

Thishelpedreducethegrosslossin200001toRs152.2millionfromRs255.5millioninthecorrespondingquarterof1999
00.TheremainingsumofRs1.05billionaftertherepaymentofdebtfromthesalewasusedforworkingcapitalrequirements
and automotive business. HM continued its customer relations enhancement initiatives with the launch of the 'click and
customize'serviceforLancercustomersinSeptember2001.

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7] After another VRS, which closed in July 2001, the Uttarpara plan workforce had come down to 9,200. The plant, suffering a loss of Rs. 70 million per month had
stoppedfunctioningontwoweekdays.InAugust2001,HMwasaskedbytheStateGovernmenttosubmitacomprehensiveplanforrevivingtheplant.Thesituationat
theplantcontinuedtobegrimeveninlate2001.

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